Earlier today, a little bird pointed us to an 8-K filed by Ignite Restaurant Group ("IRG") on July 18, 2012. In this filing we learn that IRG shared the always-riveting Item, "Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review."
On July 18, 2012, the Board of Directors of Ignite Restaurant Group, Inc. (the “Company”), upon the recommendation of management, concluded that the previously issued financial statements for the years ended December 28, 2009, January 3, 2011 and January 2, 2012 and the twelve week periods ended March 28, 2011 and March 26, 2012 (collectively, the “Restated Periods”) should not be relied upon because of errors in the accounting treatment for certain of its leases contained therein (the “Accounting Errors”). Following an internal assessment of its lease accounting policies, the Company has determined it necessary to correct non-cash related errors related to its accounting treatment of certain leases. Adjustments for these errors will reflect non-cash charges primarily related to deferred rent. As a follow-up to this review, the Company is also commencing a detailed review of its historical accounting for fixed assets and related depreciation expense in prior periods as a private company. Following the completion of the accounting review, the Company, with the concurrence of its independent registered public accounting firm, PricewaterhouseCoopers LLP, will restate its previously issued financial statements for the Restated Periods.
Okay, a restatement. It happens but the fact that these two issues – leases and fixed assets – are at the center of a restatement is interesting (read: troubling) primarily because, well, they are two fairly common occurrences in business. Most businesses pay rent and most businesses purchase things that will be useful for more than one year, right? Right. It's also interesting (read: very troubling) that the company admits that the errors "date back to 2006, the year of the Company’s origination." In other words, they've never, ever, ever gotten this right. Ever!
And adding insult to injury, there's this little gem:
In connection with the restatement, the Company will also reclassify $175 thousand of general and administrative expense from the first quarter of 2012 into 2011. The error correction relates to professional fees for quarterly reviews completed by the Company’s independent registered public accounting firm in 2011 that were previously recorded in the first quarter of 2012.
All right, so we've got leases, fixed assets, plus a dash of general and administrative expenses (auditor fees, no less!). It's been a while since I've been moseying around the quad, but I think all those things are covered in intermediate accounting I and II? To be fair, a lot of companies have struggled with lease accounting in the past, but one would hope the auditors – PwC in this case – could have at least gotten them, you know, in the ballpark.
ANYWAY, the best part of this story is that Ignite just went public earlier this year and on its first day of trading the stock was up 20% from its IPO price of $14. Today, it closed at $13.88. About a month before, the JOBS Act was signed into law. Now, Ignite roughly started the process of becoming a public company by filing its initial S-1 in July of last year but it makes you wonder if the company was getting itchy for the JOBS Act to pass so they could qualify as an "EGC" and take advantage of all the "job creator" goodies:
Congress enacted the Jumpstart Our Business Startups Act of 2012, or the "JOBS Act," on April 5, 2012. Pursuant to the provisions of the JOBS Act, we qualify as an "emerging growth company." Section 102 of the JOBS Act provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. However, we are choosing to "opt out" of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Our decision to opt out of the extended transition period is irrevocable.For as long as we remain an "emerging growth company" as defined in the JOBS Act, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies" including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We may take advantage of these reporting exemptions until we are no longer an "emerging growth company."We anticipate that will remain an "emerging growth company" until the earlier of the end of the fiscal year during which we have total annual gross revenues of $1.0 billion or more and the end of the fiscal year following the fifth anniversary of the completion of this public offering.